Should Your First Offer on a Home Be Above Asking Price in Today's Market?

It's hard to get an offer accepted these days. Should you go over asking from the start?

To buy a home, you need to save up for a down payment and qualify for a mortgage. But that's only half the battle. You also need to get an offer accepted, and in today's market, that's easier said than done.

Because there's such a limited inventory of homes available today, many buyers find that even if they offer a seller's asking price, they still fail to get their offers accepted because other buyers come in with a higher price. And it begs the question -- in today's market, is offering a seller's asking price enough? Or should you automatically go in with a higher bid?

Why it pays to go above asking price

Many homes in today's market are subject to bidding wars, where one or more buyers come in and keep raising prices higher in an effort to get an offer accepted. Bidding wars can make homes even more expensive to buy, which means your best bet is generally to avoid one.

So how do you do that? The answer may boil down to making an appealing enough offer from the start to get a seller to say yes to you right away. And that's why it could pay to make an offer above a home's asking price as your initial (and what will hopefully be your only) bid.

Say a seller lists a home for $400,000, and your real estate agent agrees that that's a reasonable price in today's market. Sure, you could offer $400,000, but chances are, another buyer will come in and try to outbid you. Or, you could make a higher offer -- say, $420,000 -- from the start. The seller may be so happy with that offer that he or she says yes right away and enters into a contract with you, thereby preventing a bidding war.

On the other hand, here's how a bidding war could play out. You offer $400,000 for that home, as does somebody else. Your real estate agent might tell you to go higher, so you go back in a second time at $405,000. The second potential buyer, meanwhile, might go in at $410,000. From there, you might offer $415,000 and that other buyer might counter with $420,000. You might then counter with $425,000 and win the bidding war, all the while paying more for the home than what you could've paid by making an offer above asking price to begin with.

What's the right call for you?

Making an offer above a home's asking price could work to your benefit -- and it could mean you end up paying less for the home in question than you would under a bidding war. But if you're going to go above asking, do two things first:

1. Make sure the asking price is reasonable to begin with.
2. Make sure it's a home you really want.

If you're not in love with a given home, then why pay extra for it? Though the housing market may have limited inventory right now, hopefully, in time, it will start to open up and more homes will get added. So you may want to sit tight and wait for that to happen before you pay many thousands of dollars over asking price on a home that you could really take or leave.